Basics of Digital Currencies

To understand how cryptocurrency works it is necessary to learn several basic peculiarities of this form of money. Today we decided to tell you about the basic principles of cryptocurrencies.

- — -

All confirmed transactions from the start of a cryptocurrency’s creation are stored in a public ledger. Any person can view any transaction and follow the way of any coin from the moment of its creation. It makes all operations open but the identities of coin owners are encrypted — it is practically not possible to learn who owns a particular wallet or a coin.

All information is placed in blocks which are jointed strictly one after another and are connected with a cryptographic hash. It provides the networks’ continuity and does not allow changing any data written into it. This system is called blockchain.

A transfer of funds between two digital wallets is called a transaction. That transaction gets submitted to a public ledger and awaits confirmation. Wallets use an encrypted electronic signature when a transaction is made. The signature is an encrypted piece of data called a cryptographic signature and it provides a mathematical proof that the transaction came from the owner of the wallet. The confirmation process takes a bit of time which varies for different currencies. Miners confirm transactions and submit them to the public ledger.

Mining is the process of confirming transactions and adding them to blockchain. This is an open process as anybody willing to take part in it can join. The first miner that solves the hash of the block adds this block to the chain. Once a block is added to the chain, miners receive a small amount of new coins.

- — -

There are several factors that considerably differentiate the system of digital currencies from the traditional financial system.

Cryptocurrencies use repeated encryption based on cryptography for managing the process of creation of coins and verifying transactions.

Traditional money are controlled by centralized government such as Central banks which are the third side in this process. Creation of cryptocurrencies and transactions are based on an open source which work within the framework of peer-to-peer network (P2P). There is no body or institution that can influence digital money from the outside.

Cryptocurrencies are not backed up by physical form and exist only in a digital form within the limits of their network.

Owners of cryptocurrency keep their coins in an encrypted from in a digital wallet. All data for identification of the owners are kept in a special address which is not bound to the personality.

- — -

Considering the fact that cryptocurrencies are also called digital money, you shouldn’t confuse them with digital money systems such as PayPal or Payeer. There is a huge difference between them.

Systems similar to PayPal are simply a centralized digital form of fiat money, such as USD, EUR, GBP, RUB and so on, while cryptocurrencies are open and decentralized system based on blockchain technology.

Payment systems only offer services for operations with traditional money and charge for their services some commission.

- — -

Exchangers monitoring will always help you find a good rate for purchasing digital currencies based on blockchain technology. We wish you reliable and profitable exchanges!

Image for post
Image for post

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store